IRS in political crossfire over tax-exempt pressure groups

Reuters

WASHINGTON, Aug 6 (Reuters) - The U.S. Internal RevenueService got an earful from both sides of the partisan divide onMonday in a debate over the tax status of a breed ofincreasingly powerful political pressure groups, including somewith ties to the conservative Tea Party movement.

Ten Republican senators warned IRS Commissioner Doug Shulmanin a letter not to buckle under to what they called pressurefrom Democrats as the tax collection agency decides what to doabout tax-exempt "social welfare" g r oups.

Known as 501(c)(4) groups after the section of the tax codethat makes them tax-exempt, the groups are raking in money andspending it on a tidal wave of negative advertising.

The groups include one run by Republican political operativeKarl Rove's Crossroads GPS organization. President Barack Obamahas one, too, under his Priorities USA group.

The IRS, in an uncomfortable spot in a presidential electionyear, is trying to decide whether these increasingly influentialgroups fulfill legal requirements allowing them to remaintax-exempt, and whether those requirements need to change.

"We urge you to resist allowing the IRS rulemaking processto be subverted to achieve partisan political gains," theRepublican senators said in the letter to Shulman.

Democratic Senator Charles Schumer shot back in a statement,calling the letter an "unsubtle threat ... clearly designed toput a chilling effect on the agency's enforcement of the law."

Last month the IRS said it "will consider" changing therules for 501(c)(4) groups. That statement came in response to aMarch 2012 letter from public interest groups demanding that theIRS clarify standards for the groups' tax-exempt status, amidconcerns some are going too far in their campaign activities.

The Republican senators asked the IRS to say whether or notit is drafting rule changes. The IRS did not immediately respondto requests for comment.

The 501(c)(4) groups can raise unlimited campaigncontributions and do not need to disclose donors' identities,unlike Super-PACs, which do have to reveal contributors. Withouttax-exempt status, the groups would likely need to disclosetheir contributors to the Federal Elections Commission.

To stay tax-exempt, these groups cannot endorse a candidateor political party. The groups have been financing negative adcampaigns on both sides of the presidential election contestbetween Obama and presumptive Republican challenger Mitt Romney.

The number of political groups requesting 501(c)(4) statushas jumped since the Supreme Court's 2010 "Citizens United"decision that eliminated limits on political contributions infederal elections.